A police officer in Alabama proposed murdering a black resident and creating bogus evidence to suggest the killing was in self-defence, the Guardian has learned.

Officer Troy Middlebrooks kept his job and continues to patrol Alexander City after authorities there paid the man $35,000 to avoid being publicly sued over the incident. Middlebrooks, a veteran of the US marines, said the man “needs a god damn bullet” and allegedly referred to him as “that nigger”, after becoming frustrated that the man was not punished more harshly over a prior run-in.

The payment was made to the black resident, Vincent Bias, after a secret recording of Middlebrooks’s remarks was played to police chiefs and the mayor. Elected city councillors said they were not consulted. A copy of the recording was obtained by the Guardian.

“This town is ridiculous,” Bias, 49, said in an interview. “The police here feel they can do what they want, and often they do.” Alexander City police chief Willie Robinson defended Middlebrooks. “He was just talking. He didn’t really mean that,” he said in an interview.

Within months of the recording, Middlebrooks was the first officer to respond to a controversial fatal shooting by a colleague of an unarmed black man in the city. He was closely involved in handling the scene and gave a key account of what happened to state investigators. His fellow officer was eventually cleared of any wrongdoing and both men continue to police the city of about 15,000 people about 55 miles north-east of Montgomery.

Middlebrooks, 33, made the threatening comments to Bias’s brother-in-law during a May 2013 encounter at his home, which Bias was visiting. Police came to the home after they discovered an unleashed dog.

A lawsuit from Bias that the city paid to settle before it reached court stated that while Bias remained inside the house and out of earshot, the officer remarked to Bias’s brother-in-law, who is white, that he was tired of “that nigger” being released from jail.

Middlebrooks had arrested Bias on drug charges earlier in the year and Bias had been released on bail after paying a bond, according to Bias and his attorneys.

Middlebrooks expressed his frustration. “Something’s going on with that fucking lawyer he knows, and that fucking … the judge or something,” he was recorded saying.

Middlebrooks allegedly went on to say “the police were going to pull [Bias] aside on a routine traffic stop and [Bias] would get killed.” According to the lawsuit, which has since been filed to court in a separate ongoing case against the city, this prompted the brother-in-law to retrieve a voice recorder that Bias had been carrying around with him in an attempt to monitor alleged harassment by police, and then return to the conversation with the officer.

On the recording, Middlebrooks is heard suggesting Bias had been behaving threateningly towards his relatives. The officer said if he were in the same position he would “fucking kill that motherfucker with whatever I had in that fucking house”.

“And before the police got here, I’d fucking put marks all over my shit and make it look like he was trying to fucking kill me. I god damn guarantee you,” Middlebrooks said. “What would it look like? Self fucking defence. Fuck that piece of shit. I’m a lot different from a lot of these other folks. I’ll fucking tell you what’s on my fucking mind.”

Middlebrooks also mocked the brother-in-law for allowing Bias to get the better of him. “That motherfucker right there needs a god damn bullet,” he said. “And you fucking know exactly what I’m talking about. The way he fucking talks to you? Like you’re a fucking child? Like he’s your … Are you his bitch or something? He talks to you like that.”

Robinson declined to make Middlebrooks available for an interview. Reached by telephone and asked whether Middlebrooks could discuss the incident, his wife said: “We’re not interested in making any comment about that, thank you,” and hung up. Middlebrooks subsequently said in a text message that he did not wish to comment in detail.

The officer did say he had been cleared by a state inquiry into the incident and referred the Guardian to the state bureau of investigation (SBI) and Larkin Radney, the city attorney for Alexander City. A spokesman for the SBI, however, said: “We have no record of us investigating this case.” Radney said: “I really don’t know what he’s talking about.”

During the interview at his office, Robinson said Middlebrooks “was disciplined” when the recording came to light, but declined to elaborate. Asked if the officer was ever suspended from patrols, Robinson repeated: “He got disciplined.” When it was put to him that some agencies might have terminated the officer’s job, the police chief said: “I don’t know what other departments do, but I made that call, and I’m going to live with that.”

Robinson tried to stress that Middlebrooks was in fact proposing that the brother-in-law carry out the killing. “He wasn’t saying that he was going to do that,” said the police chief. “He was talking about the man doing it himself.”

The police chief said he opposed the decision by city authorities to pay Bias the $35,000 sum, which was confirmed by several people familiar with the case. The chief said he believed they should have opposed the legal action publicly. “I wish we’d went to court. I wish we had,” he said. “It’s a whole lot different if you hear both sides.”

Radney, the city attorney, said the lawsuit was passed immediately to the city’s insurers, who made the decision to settle with Bias and pay him. “The city didn’t ask me to get involved,” he said. Bias said the settlement stated that the city did not admit any wrongdoing.

Eric Hutchins, an attorney for Bias who also represents the Alabama branch of the National Association for the Advancement of Colored People (NAACP), said the incident “requires an immediate investigation” by state officials.

In a letter to Tallapoosa County district attorney E Paul Jones and Alabama attorney general Luther Strange, Hutchins said the officer’s remarks were not only “unprofessional and inappropriate” but also could amount to a criminal offence.

Sources familiar with the case said investigators for the attorney general had made preliminary inquiries. A spokeswoman declined to confirm the status of any inquiry. “Our policy is to not confirm if we may or may not be investigating something,” she said.

City councillors in Alexander City said they had not been told about the case or the payment to Bias. One councillor, Tony Goss, said he was “absolutely flabbergasted” to learn of the details while another, Sherry Ellison-Simpson, said: “This alarms me.”

“This is absolutely unbelievable,” said Goss. “Thirty-five thousand dollars is a lot of money and our city council is being left out of deliberation.” While stressing he had not heard the recording, Goss said: “If an officer is recorded saying something like that there are potential grounds for termination.”

During the May 2013 incident, Bias was given a citation for the illegally unleashed dog at the home, he said, even though police were told that the animal belonged to his brother-in-law. Bias was also blamed by Middlebrooks for an illegal electricity connection the officer had found at the property. Bias, who insisted he was not responsible for this offence either, was warned by the officer that he would be fined.

Bias alleged in his lawsuit that at the time he was being repeatedly harassed by city officers, including Middlebrooks. In an interview, he claimed he was singled out both because he was black and because he was in a relationship with a white woman. The 49-year-old, who has a criminal record and has spent time in prison, said for some two years he had been targeted with an “exorbitant number of traffic tickets, citations and concocted city code violations”.

Robinson denied Bias was unfairly targeted by his officers. “I don’t care if you’ve got a record or not; we’re gonna treat you just as fair,” he said. “And I expect my people to do that, and if they don’t they have to deal with me.”

Robinson was deputy chief at the time and was involved in handling the fallout from the incident after promptly being played the recording by Bias himself. He initially suggested that Bias should take no action against Middlebrooks, according to Bias, who said he also played the recording to Alexander City mayor Charles Shaw on the same day. A spokeswoman for Shaw declined to make him available for interview.

Middlebrooks was at the time attached to the department’s crime interdiction task force. He had been among officers who received a letter of commendation from the department in November 2011 and a citation award in April 2013 for helping to reduce property crime. He is known locally to be a keen hunter, and served as a judge in a regional wild game cook-off last year. He served in the marines overseas during his early 20s.

In 2005 he married Eva Edwards Middlebrooks, who is now the Republican revenue commissioner of the surrounding Tallapoosa County. The couple has two children. Edwards Middlebrooks referenced her marriage to the police officer while touting her local connections during her successful election campaign for the position last year, but according to public records they divorced in April 2013.

In March last year, Middlebrooks was the first Alexander City officer to arrive at the scene when officer Tommy Maness shot dead Emerson Crayton Jr as Crayton drove his car out of a parking space at the Huddle House restaurant in Alexander City following an argument with staff over his late-night food order.

Maness said he was forced to fatally shoot Crayton because the 21-year-old turned his car’s wheels towards the officer as if intending to use the vehicle as a weapon against him. A Tallapoosa grand jury declined to bring charges against the officer following an inquiry by the Alabama state bureau of investigations, in which Middlebrooks played a prominent role.

Attorneys for Crayton’s family have filed a federal lawsuit against Maness and the department, alleging the 21-year-old was wrongfully killed. They argue Crayton was unnecessarily shot by Maness while attempting to drive away. The lawsuit from Bias that the city paid to settle was filed as part of the Crayton case as alleged proof of a pattern of wrongdoing by the city.